Brookfield ‘actively monitoring’ M&A flow as private equity consolidates

Brookfield Asset Management is eyeing M&A opportunities arising from “broad-based” consolidation across alternative assets, president Connor Teskey said.

“We continue to see consolidation among alternative asset managers and…we’re actively monitoring a number of situations,” Teskey said in the firm’s third-quarter earnings call. “But…we’re going to continue to be very, very selective.”

“We have a great business that has a fantastic organic growth trajectory,” he said. “And while we’re monitoring a number of situations, we’ll only pull the trigger on ones that are additive to our business, accretive to our cashflows and really round out our product suite and give us something that we don’t already have.”

Brookfield has close to $3 billion of balance-sheet capital to deploy to near-term initiatives, including “something strategic on the acquisition front,” CFO Bahir Manios added.

Consolidation in private equity and other alternative assets is today being spurred on both the LP and GP sides, Teskey said.

“Similar to what we’ve been seeing for years, increasingly clients are concentrating their capital with large-scale, reputable managers that can offer them a full suite of products and solutions,” he said. “No doubt Brookfield has been a beneficiary of that.”

“The trend toward consolidation is also being driven by the managers themselves,” Teskey said. “Increasing requirements in compliance and the required level of customer service is much easier to do when you’re part of a scaled manager that can amortize the cost and requirements of those functions across a much broader business.”

“For smaller-scale managers,” he said, “having a large depth of talent, a large number of men and women to choose from, also helps with succession planning. And that’s a driver of consolidation in the space as well.”

Private equity has recently seen several high-profile M&A transactions. In May, TPG struck a $2.7 billion deal to buy credit and real estate firm Angelo Gordon. And in September, Bridgepoint and energy transition specialist ECP agreed to merge, reflecting an upfront value of roughly $1 billion.

ECP is joining the listed Bridgepoint in part to address long-term succession plans. “I’m not going anywhere,” senior partner Doug Kimmelman told Buyouts, “as I have a lot of gas in the tank.” However, coming up with a mechanism for a future liquidity event “takes it off the table.”

The move also helps ECP avoid the consequences of consolidation pressures, Kimmelman said. “LPs were not always focused on the stability of their GPs, but this has become more important in a challenging fundraising environment. Some small managers are just going to go away.”

A tough fundraising market is likely accelerating consolidation by creating a mix of haves and have-nots. Some overstretched LPs, for example, are culling their GP relationships in favor of a smaller and more manageable group of high-performing shops.

The $865-billion Brookfield has previously realized gains from M&A. In 2019, the firm bought a majority interest in Oaktree Capital Management, greatly enhancing its exposure to credit. The deal was fortuitous considering the explosion in private debt opportunities over 2022-2023.

Of the $61 billion of Brookfield capital raised so far this year, more than 40 percent is attributable to credit and insurance, Teskey said in the earnings call.